Hi,
Thank you for mentioning my little plugin 
I was looking at what might be causing this division by zero problem and found the bug causing it. I have fixed it and you can download the updated plugin from the site.
The problem did not have anything to do with the images being from an external domain. The problem occurred in the calculation routine that automatically figured out image height or with if only one of the two was given.
If you want to create thumbnails of images on a remote server I think you have to fiddle with this part of the phpThumb config (not sure though if that is enough):
// * Off-server Thumbnailing Configuration:
$PHPTHUMB_CONFIG['nohotlink_enabled'] = false; // If false will allow thumbnailing from any source domain
$PHPTHUMB_CONFIG['nohotlink_valid_domains'] = array(@$_SERVER['HTTP_HOST']); // This is the list of domains for which thumbnails are allowed to be created. Note: domain only, do not include port numbers. The default value of the current domain should be fine in most cases, but if neccesary you can add more domains in here, in the format "www.example.com"
$PHPTHUMB_CONFIG['nohotlink_erase_image'] = true; // if true thumbnail is covered up with $PHPTHUMB_CONFIG['nohotlink_fill_color'] before text is applied, if false text is written over top of thumbnail
$PHPTHUMB_CONFIG['nohotlink_text_message'] = 'Off-server thumbnailing is not allowed'; // text of error message
Best,
Sami
